Authors

Velimir Bole

Jože Mencinger

Franjo Štiblar

Robert Volčjak

Sound growth without support of the government and banks

Gospodarska gibanja 478

ABSTRACT

In the first quarter of 2015, investments became of the most important facilitator of economic growth. They contributed as much as four-fifths to the growth of GDP, trade balance added almost a fifth, a modest contribution of consumer spending was partly offset by lower government spending. Redistribution of GDP at the expense of labor and in favor of capital - gross operating surplus, continued; in a year labor lost one percentage point in the share of GDP, employers' social contributions share decreased as well, while there was an increase in the shares of operating surplus and net indirect taxes. Industrial production was the engine of growth in the production structure. It contributed almost half, transport, storage and catering one-fifth, net indirect taxes contributed to the difference between the value added and GDP. Growth in GDP has been decreasing due to financial and insurance services, and construction.

Total external trade in April stagnated due to moderate growth of trade within the EU and the sizable drop in trade with countries outside the EU. After several months, trade balance became negative; deficit in trade within the EU was larger than the surplus in trade outside the EU.

Economic sentiments in May did not alter; confidence in manufacturing increased, business climate in the services sector cooled down, confidence in construction remained unchanged, confidence in retail trade declined. The economic climate in the EU compared with May last year, recovered, while general business optimism lowered somewhat. Slovenian consumers were in May about as optimistic or pessimistic as in April, while their optimism when compared to the previous year strengthened substantially.

Industrial production in March compared to March last year increased, impulse trend points to a continued growth. Industrial production in the EU28 in March was the same as last year, large monthly fluctuations in the countries continued.

The value of construction works in March was higher than in February, but lower than last year, the number of hours worked was bigger. Tourism, at least until March, was in good shape, but the impulse trend points to a possible impasse; this time of foreign visitors. There were more air passengers and passenger kilometers than in March last year; in Koper less goods than last year were handled.

The labor market situation is improving; the number of economically active persons and employees is gradually increasing, the number of job seekers is decreasing. Among the newly registered persons with the employment offices, job seekers who have lost their jobs for a fixed period dominated, among those outgoing the majority were persons who found a new precarious job or uncertain self-employment. The unemployment rate in the EU is slowly declining, the lowest is in Germany, the highest in Greece and Spain.

Deflation in Slovenia in remains somewhat more persistent than in the euro area, in which the annual consumer price index in May increased while in April it decreased in Slovenia. Retail prices rose in May, but they were lower than they were last May. The increase in May was a result of higher increase in prices of goods, it was hampered by prices of services. The price increases were general, there were no drastic price increases; prices of food increased most.

Industrial producer prices grew due to higher prices of products for markets outside the EU, while the industrial products for the domestic and the EU market were slightly cheaper. In one year, the prices of products sold on foreign markets increased, the prices of products sold on the domestic market, did not alter. Among the groups according to the end-use, consumer goods and capital goods prices rose, raw materials and energy became are cheaper.

In March, average net salary was higher than in February, while the average earnings per hour decreased. The increase in monthly earnings was generally attributed to larger number of working hours, as the reduction in hourly wages were also general. Also in a year, the net monthly salary increased, hourly salary decreased. Relative salaries by activities have not changed significantly; net earnings in the electricity, gas and steam remained at the top, they were followed by wages in financial and insurance services, wages in the information and communication activities, and in mining. Less than 700 euro earned those working in a variety of business activities. Net hourly earnings were the highest in financial and insurance services, less than 5 euro per hour earned the employees in the catering and tourism and in other business activities. The wage developments do not support the “truism" about the necessity of a reduction in labor costs.

In May, all public caskets collected less than in April and less than in May last year. Such bad results are due to two sources of government revenues: excise duty, drop of which is somewhat inconsistent with the movements of other indirect taxes, but is hiding in the altered imbursement, and revenues of the administrative units, where the "hole" was caused by last year's May payment of concessional duties. Other tax revenues were more or less in line with the developments in the economy. Extraordinary inflow of tax on profits in April was followed by May, when tax refunds exceeded tax payments.

May's excise tax revenues and the "hole" in the revenues of administrative units greatly affect the cumulative revenue. Total general government receipts are after May therefore only less than one percent higher than they were in the same period last year. Payments to the ZZZ (health fund) were in May 2.5 percent higher than last year, payments to the ZPIZ (pensions fund) were 3 percent higher. In the first four months, more than 100 million € more was received from the EU budget than paid to it.

In the beginning of June, the Board of the Bank of Slovenia discovered signs of change in the lending of banks to non-financial sector. But the data on total loans do not confirm that, as the year to year contraction in loans to non-financial corporations continues at current rates, loans to households more or less stagnate, loans to non-monetary financial companies drop rapidly. Also the profit and loss reports of banks in the first quarter do not indicate changes; lower interest income and expenses, and net interest income only confirm the continued contraction of credit. One cannot expect much from the renewed Banking Act, as it brings only continued increasing regulation for the operation of banks. In April also deposits decreased as well. The "odd" operation of banks is clearly in line with EU requirements. Part of lending seems to be, according to bidding via the internet, taken over by "excellent foreign banks." The shrinking of banking is also reflected by a comparison of the dynamics of assets, loans, deposits, and capital of banks in Slovenia with the dynamics in the euro area countries. Slovenia is by the shrinkage of assets, loans and deposits almost everywhere on the top, and this holds also regarding the increase of the capital. Interest rates on deposits are approaching zero, and are generally below average in the euro area, lending rates are also decreasing, but are generally beyond the interest rates in the euro area. According to the report of BS, the quality of bank assets is improving, a detailed review however shows that the overall decline in the proportion of bad loans is caused by the share of non-performing loans of, while for the economy decisive proportion of bad loans of domestic enterprises and craftsmen increases.

In March and in the first quarter, favorable foreign trade influenced the favorable results of the current balance of payments. The surplus was in both cases the result of surpluses in goods and services balances and deficits in income and current transfers balances. This year changes in individual sub-accounts of the financial account were significantly lower than last year, gross and net external debt declined. Yields on Slovenian bonds grow, but more or less in line with the growth of yields in other EU countries.

Full article is available in Slovenian language.

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